Rite Aid's Loss Narrows - Analyst Blog

Leading drugstore chain operator Rite Aid Corp. (RAD) posted a lower net loss of $81.5 million in the third quarter of fiscal 2011, compared with a loss of $86.1 million in the year-ago period. The quarterly loss per share of 9 cents was an improvement over the Zacks Consensus Estimate of a loss of 13 cents.

Quarterly Details

Rite Aid's revenues declined 2.4% year over year to $6.2 billion from $6.4 billion, primarily due to a 1.3% decline in same-store sales. During the quarter, the company opened 1 new store, relocated 11 stores, remodeled 15 stores and closed 17 stores.

Pharmacy same-store sales decreased 1.9%, hurt by the introduction of new generic drugs, while prescriptions filled at comparable stores decreased 1.7% from the year-ago quarter. Front-end same-stores sales came in flat compared with the year-ago period. Other than prescription drugs, Rite Aid sells a wide assortment of other merchandise, which it terms as "front end" products, including over-the-counter medications, health and beauty aids, personal care items and cosmetics.

Rite Aid's gross profit fell 2.7% year over year to $1641.2 million while gross margin came in flat at 26.5%. Selling, general and administrative expenses (SG&A) declined 1.7% year over yearto $1578.1 million, mainly due to management's cost containment initiatives.

The company also recorded a 51.5% reduction in lease termination and impairment charges to $17.0 million, primarily due to fewer store closures in the reported quarter. Rite Aid reported operating profit (gross profit less SG&A and lease termination and impairment) of $46.0 million, compared with an operating profit of $46.1 million in the prior-year quarter.

Balance Sheet and Cash Flow

At the end of the quarter, Rite Aid had cash and cash equivalents of $122.0 million and long-term debt of $6,089.8 million. During the quarter, the company deployed $6.1 million toward debt repayment and $31.9 million toward capital expenditure.

Guidance and Zacks Consensus

Looking ahead, Rite Aid expects fiscal 2011 revenue to be in between $25.0 billion and $25.2 billion based on same-store sales decline of 1.5% to 0.9%. Net loss is now expected to be in the range of $525 million to $655 million (or 60 cents to 74 cents per share).

The company competes with, among others, retail drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, discount stores, dollar stores, and mail order pharmacies. Competitive pressure in the industry is unlikely to subside with continued consolidation, new store openings, and increased mandatory mail orders. The company's main competitors are Walgreen Co. (WAG) and CVS Caremark Corporation (CVS).

 
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